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Taking out a mortgage is one of the biggest responsibilities that adults will face. Falling behind on your mortgage can lead to paying more interest charges, late fees, foreclosure proceedings and even losing your house. Mortgage protection insurance (MPI) is one way to safeguard your family and investment in case the unthinkable happens.

Mortgage protection insurance, or MPI, is a type of life insurance that pays the remaining balance on your mortgage to your lender. It is especially beneficial to people with costly mortgages that their dependents couldn’t cover if they died.

“Mortgage protection and life insurance are the same thing, just marketed differently,” says Doug Mitchell, owner of Ogletree Financial, a life insurance agency.

There is one key difference, however. Mortgage insurance is connected to your mortgage. Let’s say you have 15 years left on a $250,000 mortgage. You can take out a MPI policy for the life of that mortgage that will help pay off some or all of the mortgage if that person dies.

“What the mortgage protection insurance does is offer you an option to have payments available so that you won’t default or foreclose on the mortgage,” said Jordan Shanbrom, a life insurance broker with California Life Coverage.

Key Takeaways

  • Mortgage protection insurance (MPI) is a type of life insurance policy that offers dual benefits and helps the family with a mortgage if you die.
  • If you have mortgage insurance, it will help you pay a portion or all your mortgage in case you die.
  • Some insurance companies will let you turn the mortgage insurance into a life insurance policy and some providers let you add riders to help with living benefits.
  • If you’re a senior citizen or have a medical condition, such as a heart condition or cancer, you may be prevented from getting a mortgage insurance policy.

What is mortgage protection insurance?

Mortgage insurance pays off the remaining balance on your mortgage if you die. This protects your family from falling behind on mortgage payments, which can lead to foreclosure or having to sell your home. 

Depending on the policy, mortgage insurance may pay off the entire mortgage at once or it may pay the mortgage off over a period of time, such as five years. The longer the length and size of the payoff, the more you’ll pay in premiums.

The death benefit for mortgage protection insurance pays the lender on your mortgage — not your family. Unlike traditional life insurance policies, your loved ones will not get to use the money from an MPI policy. 

You can also add riders to help with living benefits. These benefits could include paying for your mortgage if you become disabled and can’t work or lose your job. For instance, you could add a long-term disability rider that pays up to 60% of your income to help your bills if you become disabled and can’t work. Adding riders usually increases your premiums. However, riders can help you customize a policy that works for you.

How mortgage protection insurance works

MPI acts like a traditional life insurance policies. You pay your insurance provider a premium each month and the insurer pays out when you die. The company will pay either an agreed upon number of house payments or the full mortgage, depending on the terms of the policy, according to mortgage lender Quicken Loans.

Read on to find out who should get mortgage protection insurance, what it covers and how much MPI costs.

Who needs mortgage protection insurance

Anyone with a mortgage balance could benefit from mortgage insurance.

“My advice is to purchase life insurance to cover the mortgage in the event one of the homeowners dies prematurely. Don’t just buy an amount of life insurance equal to the mortgage amount – you probably have other financial bases to cover,” Mitchell said.

Shanbrom said MPI can also help people who rely on the main note holder. If that person dies and can’t make payments, it “could impact the equilibrium of the household and make it hard for those within to go back to work.”

Necole Gibbs, licensed independent broker at TNG Insurance and Financial Services, said mortgage insurance is an especially good idea for young couples with children.

“If something were to happen to either of the two during the term, the surviving spouse would receive the death benefit and would then be able to pay off the mortgage,” Gibbs said.

If you’re concerned about losing money through premiums, you could choose a return of premium policy. Those policies, which can be pricey, pay you back your premiums if you outlive your mortgage insurance. Gibbs said these policies get returned as a lump sum at the end of the policy’s term.

MPI is also an option if you don’t want to take a medical exam to buy a regular term life insurance policy. Some insurers don’t require an exam for an MPI policy.

“It opens the window to get life insurance without having to jump through all the hoops,” says Andy Albright, president and CEO of National Agents Alliance.

What does mortgage protection insurance cover?

Mortgage life insurance covers outstanding balances on your mortgage if you pass away before it has been fully paid off. It does not cover anything else — such as final medical bills or funeral costs like a traditional life insurance policy.

The reason it cannot be used for anything else is because the policy pays out to your lender — not your beneficiaries. While traditional policies pay out to your family and can be used however they wish, MPI pays out to your lender and only covers the cost of your mortgage. 

How much does mortgage protection insurance cost?

Mortgage protection insurance rates vary depending on the size of your mortgage and how much time is left on the loan. When figuring out MPI premium costs, insurance companies consider:

● Your age

● Smoking status

● Length of time and amount left on the mortgage loan term

● Whether the policy covers two spouses

Let’s take a look at possible monthly costs. If you have $120,000 left on your mortgage, you may find a mortgage insurance policy with bare minimum coverage of $50 a month. Adding riders, such as return of premium and living benefits, can increase the average monthly cost of mortgage protection insurance payments to $150 or more on that same $120,000 amount.

Exclusions to getting mortgage payment insurance 

Shanbrom says companies may include mortgage insurance exclusions. You may not be able to get a policy if you are:

●  A senior citizen

●  Not a U.S. citizen

●  Permanently disabled

Mortgage protection insurance vs. private mortgage insurance

Mortgage insurance may sound similar to Private Mortgage Insurance (PMI), but they’re entirely different.

PMI protects the bank or lender in case a homeowner stops paying a mortgage. If you’ve purchased a home with less than 20% down, your lender probably required you to purchase PMI.

While mortgage protection insurance will pay off your loan when you die, PMI is intended to cover a portion of your loan if you default. The benefit is paid to your lender, not your family.

Alternatives to mortgage protection insurance

Mortgage insurance is one way to protect your home, but there are other options, including term life and permanent life insurance.

Most mortgage insurance policies are similar to term life policies. But there are notable differences. 

Here are the pros and cons of mortgage insurance, term and permanent coverage.

Insurance typeProsCons
Mortgage protection insurance
  • Guarantees your mortgage is paid
  • Can help if become disabled or job loss
  • No medical exam usually
  • Declining payoff
  • Payout goes to mortgage company
Term life insurance
  • Better death benefit
  • Lower rates
  • Medical exam required
  • Only covers you for a period
Permanent life insurance
  • Better death benefit than mortgage insurance
  • Survivors can use it for more than paying off the mortgage
  • Cash value
  • More expensive
  • Medical exam usually

No matter what policy you decide on, make sure to shop around to find the right plan for you. Mortgage life insurance can be a wise choice if what’s most important is to pay off your mortgage.

Frequently asked questions

Does mortgage protection insurance cover death? 

Unlike other life insurance policies which provide death benefits to your beneficiaries, mortgage insurance only pays off the mortgage after the borrower dies if the loan still exists. Mortgage insurance does not cover death, as the beneficiary here is the lender who gets paid the remaining balance of the mortgage through this insurance policy.

Do I need mortgage protection insurance? 

You are usually better off with a term policy that provides enough coverage to pay off your mortgage because of the inflexibility of mortgage protection insurance payouts. Choosing term policy provides options for your family to either use the death benefit to pay off the house and use the leftover money or even skip paying the mortgage and use the money as they like.

A mortgage life insurance policy ensures that the borrower’s family continues to pay off the mortgage, even if other expenses and requirements arise.

Is mortgage insurance worth it?  

For most individuals, a term life insurance policy is the superior option. It is cheaper, more protective, and more adaptable than most mortgage protection insurance companies. 

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